Beginner's Guide to Ecommerce

Whether you call it Internet commerce, or
ecom,
or ecommerce, or immerce, it means essentially the
same thing.
These terms mean buying or selling something electronically, and
the time
has never been better to jump in.

If you have something you'd
like to sell
on the Net, new technologies have opened up an array of ecom
options --
there's one to suit every need and requirement.

Most importantly,
ecom is
safe. Experts tell us that online transactions are every bit
as safe as
face to face transactions-- although neither can be guaranteed to
be 100%
risk free. You're just as likely to be mugged on your way to the
Bank
Machine as you are to run into security problems with Internet
commerce!

But ecommerce can be a confusing subject and many of us need a
little help
sorting it all out. If the jargon is confusing, read
on and Iíll
explain some of the basic concepts. This document contains three categories of information:

Definition of Ecommerce Terms

Commerce Service Providers (CSP)

CSPs are business or web sites that provide ecommerce
solutions.

Digital or Electronic Cash or E-cash or Ecash or Digital
Money

These terms are also used interchangeably, and they refer to
any of
the various methods that allow a person to purchase goods or
services by
transmitting a number from one computer to another. The numbers
are issued
by a bank and represent sums of real money. Digital cash is
anonymous and
reusable. Unlike credit card transactions, the merchant does not
know the
identity of the shopper.

Customers pay for merchandise by writing an electronic check
that is
transmitted electronically by email, fax or phone. The
"cheque"
is a message that contains all of the information that is found on
an
ordinary cheque, but it is signed digitally, or
indorsed. The
digital signature is encoded by encrypting with the customerís
secret key.
Upon receipt, the merchant or "payee" may further
indorse by
encoding with a private key. When the cheque is processed, the
resulting
message is encoded with the bankís secret key, thus providing
proof of
payment.

Various companies are selling Electronic Check software and
services.

Electronic Wallet

Electronic Wallets store your credit card numbers on your hard
drive in
an encrypted form. You then make purchases at Web sites that
support that
particular type of electronic wallet . By clicking on a Pay
Button,
customers initiate a credit card payment via a secure transaction
enabled by
the electronic wallet companyís server.

Electronic Commerce or Ecom or Emmerce or EC

These terms are used interchangeably, and they all mean the
same thing ó
the paperless exchange of routine business information using
Electronic Data
Interchange (EDI) , email, electronic bulletin boards, fax
transmissions and
Electronic Funds Transfer. It refers to Internet shopping, online
stock and
bond transactions, the downloading and selling of "soft
merchandise" (software, documents, graphics, music, etc.),
and business
to business transactions.

Extranet

An extranet is an extension of a corporate intranet. It
connects the
internal network of one company with the intranets of its
customers and
suppliers. This makes it possible to create e-commerce
applications that
link all aspects of a business relationship, from ordering to
payment.

Disintermediation

Disintermediation is the process of bypassing retail channels
or mail
order houses and selling directly to the customer.

Hard Goods vs Soft Goods

Hard Goods are items that exist in the real world, as opposed
to soft
goods, which exist virtually or electronically. For instance, an
Internet
merchant selling a book that is shipped to the customer in a print
version
is selling hard goods; a merchant offering a book for download in
electronic
format is selling soft goods.

High Risk Processors

High risk processors (or brokers) are financial institutions or companies
that that
issue merchant status accounts to high risk businesses. They
offset their
risks by charging higher transaction fees and higher rates than traditional banks do. However, the initial outlay of cash that you will be required to put up is usually much less than the large deposits required by traditional banking institutions. Some brokers may offer other added features such as shopping cart software, web site templates, forms or secure lines for ordering.

Immerce

Immerce is the new term being used for commerce that is
transacted
totally over the Internet.

Merchant Account

A Merchant Account is a relationship between a business (i.e. a merchant) and a
merchant bank which allows the retailer or merchant to accept credit card
payments from
customers. Depending on the country involved, banks or financial institutions could have stiff
requirements and
regulations regarding the issuing of a merchant account. Many
small or home
based businesses report that they have great (sometimes
insurmountable)
difficulties acquiring Merchant Status. If Merchant Status is
obtained, the
merchant then rents or buys special software that is used to process the transaction. In some cases, depending on the bank and depending on the type of business that you are operating, you will also need to purchase or rent a piece of hardware known as a processing terminal.

When considering your options, also think long term. If in the future, you will need to accept payments virtually, through the phone, or at a physical location make sure the merchant you choose can handle those needs.

An Internet Merchant Account is a special
account that
permits the acceptance of credit cards online. Transactions are processed online, in real
time. While the customer waits, the system checks the credit card to be sure that it has not been reported stolen, has not expired, and is listed to the same address that the customer has given. If the card is approved, the customer and the merchant are both automatically notified that the sale has transpired. This
type of account is a stricter banking relationship than one involving
face-to-face transactions. Web transactions do not gather
signatures
from purchasers and therefore there is a higher risk of fraud.

Merchant Brokers specialize in obtaining credit
card
accounts for online businesses. Brokers charge a setup fee and lease
or sell
the software and hardware as needed. Expect to pay a discount rate,
which is the
percentage you pay for each transaction processed, as well as various other charges that differ among services. If
obtaining a
merchant account through a traditional bank is proving to be a
problem, merchant brokers are a good alternative.

Facts
About Accepting Credit Cards Online

Before you can accept credit cards (either online or offline), you
must
have a Merchant Account, which is a special arrangement with a
banking
institution. Small and home
businesses often experience difficulties qualifying for a merchant
account,
and Web based businesses run into even more problems.

The situation is this: Online transactions donít take place at the
point of
sale (POS). They are considered to be "non-face-to-face"
transactions. Since there is no way of ascertaining the customerís
identification, there is no way to be sure that the customer is
the
legitimate card holder. Therefore, financial institutions are leery about the high potential for fraud.

Moreover, the major credit card companies offer their card holders
the right
to contest charges on their statements that may be the result of
theft,
fraud or error. A contested charge is referred to as a
chargeback. When a chargeback occurs, the merchant will
end up
paying the charge to the issuing bank, in addition to a chargeback
fee that
can be as high as $30 or more. For example, if you sell a book
for $20
through a credit card transaction, and the cardholder later
contests the
sale, you will end up paying your bank the $20 PLUS a chargeback
fee of $10
to $30 dollars.

Consequently, many banks require a reserve fee when issuing
merchant
status. Typically, face to face sales have a chargeback rate of 1%
of all
sales. The potential for chargebacks is greater when it is an
online sale,
so the risk to both bank and merchant increases.

To minimize their risks, most banks have stringent requirements
that a
business must meet to establish eligibility for merchant status.
Factors
considered include cash reserves, length of time in business, tax
returns,
credit history, debt load, refund policies, volume of business,
cost of item
being sold, and other sources of income.

High Risk Processors are merchant acquirers that
specialize in high
risk business. They offset their risks by charging you higher
transaction
fees and higher rates. In the US, the Electronic Card Systems Inc. and Card
Service
International are two of the better known examples. Merchants living outside the US will be required to find a service that works with their own banking institutions.

Other Associated Expenses

The chargeback expense is the first and foremost concern for a
merchant
hoping to acquire a merchant account. Chargebacks can result in serious financial loss to the would-be merchant. Also, merchants who encounter too many chargebacks are at risk of losing their merchant account.

However, there are other charges and expenses to factor into the budget as well. Merchants will need to investigate
hidden
equipment costs, setup fees, line charges, bank transactions fees, holdbacks,
and
discount rates, etc. These vary considerably among service providers, so compare, compare, compare!

Ecommerce Solutions Compared

There are dozens, perhaps hundreds of businesses and
organizations eager
to assist you sell your product online. Basically, they fall into
four
categories: credit card transactions, digital cash transactions,
electronic
fund transfers and telephone billing systems. No solution is
perfect and
each comes with its own set of pros and cons. The right choice for
you
depends upon your specific business requirements.

1. Merchant Internet
Accounts.

If you have a merchant status, you will need to consider the
following
factors: Pros:

Consumers are familiar with credit cards.

With credit card transactions, consumers doní have to download and install special plugins.

Credit card sales lends itself to impulse buying.

You have the customers' contact information for follow up sales
and
marketing purposes. (This is a pro for the merchant but a con from the point of view of many
customers,
who prefer anonymity.)

Vendors wanting
to sell
down loadable soft goods will need to find a way to ensure the
product
is paid for, either before or after the download.

You will have to deal with chargebacks.

If you canít or wonít get a merchant account through your regular
banking
institution, you still have the broker option open to you.
Brokers can
often arrange merchant accounts for businesses who are deemed high
risk.
Setup fees and discount fees apply.

2. Electronic Cash Transactions

Electronic money is an arrangement whereby the customer pays for
the
merchandise using electronic money. Examples of this are
the well
known DigiCash, CyberCash, etc. As consumers become more comfortable providing credit card information over the Net, these methods are less utilized.

The Pros

No credit card transactions are required.

No concerns re chargebacks.

Lends itself well to micropayments.

Cons

Many people are unfamiliar with the concept and shy away from
unknown
entities.

The process is perceived as "a hassle" to some
shoppers who
prefer to simply give credit card information.

Both merchant and customer must be participating in the same
scheme before this method of ecom can be used.

Eliminates the possibility of impulse buying, unless both
customer and
merchant are already in same scheme.

3. Electronic Fund Transfers

Funds are transferred electronically from the customers bank
account to
yours. (This is a highly simplified explanation, and is accurate
in the most
general sort of way. However, the bottom line is that the customer
buys, and
at some point the funds are removed from his or her account and
ultimately
deposited into yours.)

The best known method is the issuing of electronic
checks
Customers pay for merchandise by writing an electronic check that
is
transmitted by email, fax or phone. The
"check" is
a message that contains all of the information that is found on an
ordinary
check, but it is signed digitally, or indorsed. The
digital
signature is encoded by encrypting with the customerís secret key.
Upon
receipt, the merchant or "payee" may further indorse by
encoding
with a private key. When the cheque is processed, the resulting
message is
encoded with the bankís secret key, thus providing proof of
payment.

Pros

No credit card worries

Available to persons without credit cards

Cons

A very new technology that some perceive as being less secure
than
other forms of ecommerce.

Many customers are not set up to issue electronic cheques; time
required
to make the arrangements eliminates impulse buying.

May not be available to international consumers.

4. One-Stop Shops

More recently, with the huge interest shown in ecommerce, a multitude of services and products have become available. It's now a possibility to find a service that will broker your Internet Merchant Account, as well as providing web site storage, a template for designing your site, shopping cart software, a form generator, a secure line for safe online ordering, and more. IBM, ICAT and Vantage are examples of businesses offering these all-encompassing services. They are excellent starting points for the entrepreneur who wants to delve into ecommerce.

If you are looking for a one-stop shop that makes everything fast and easy for you ... from building the site to submitting to search engines to providing an ecommerce solution and a whole lot more, then check out Site Build It, a hugely popular product from the SiteSell family.

If you found this free document useful, then I'd also invite you to check out my other helpful business documents or visit the Internet Marketing Center for the absolute best tips on Internet Marketing that you're likely to come across.